Unfinished construction will go under the hammer

The Russian government has come up with a way to combat unfinished commercial construction: if the building is not delivered on time, it may be sold. The methods of combating unfinished construction are contained in the amendments to the Russian Land Code that the Russian Government has put before the State Duma. The draft law has been worked up by the Russian Economic Development Ministry and in late January it was approved at a meeting hosted by the President. The document proposes that there will be a reform of land legislation, and among other things it regulates the process of construction on state-owned land. It is prohibited to sell such land for commercial development, and plots may only be leased. The lease contract for construction will be signed for two standard time periods (these will be set by the Russian Construction Ministry). If during this time the company fails to construct the building, the State may go to court to take possession of the unfinished facility from the owner. If the company fails to prove that the deadlines were not met through the fault of public officials or utilities companies, then the unfinished construction may be put up for sale. The starting price will be equal to the market value of the property. The former owner will be paid the proceeds of sale, less the costs of the auction. By the start of 2014, there were around 430,000 facilities still under construction in the State Real Estate Cadastre, according to a spokesperson from registration body Rosreestr. This is just over 1% of the total number of buildings and structures. At present under the Russian Land Code, a landowner may terminate a lease agreement if the tenant has still not started to develop the land plot three years after the contract was entered into, says Alexey Konevsky, a partner at Pepeliaev Group. However, the law does not settle the fate of an unfinished construction that remains on the site: this issue is resolved either by agreement or by going to court. Konevsky explains that the owner may require the tenant to vacate the plot (but the company may lack the money to make this happen), or may buy back the facility. The most vulnerable parties are municipalities, he notes. They may not have the money to buy the land back so may have to reconcile themselves to unfinished construction. (Page 2)